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What charitable deduction can we claim for real estate gift?

Your Legal Questions Answered

What charitable deduction can we claim for real estate gift?

Our for-profit company purchased a piece of property in 2018. We paid $2,500 at a tax deed sale and have spent about $1,000 on property taxes since. Our city appraises the property at about $20,000, but we all know that city appraisals are often low compared to market values.  We would like to donate this property to a 501(c)(3) charity that builds group homes for newly released prisoners. Would it be out of bounds to claim a charitable contribution deduction for $50,000?

There is no way that I can give you a number for your deduction from my office.  But the tax rule is clear.  Assuming that you are not in the business of buying and flipping real estate and that this property would not be considered “inventory,” you can claim a charitable contribution deduction for the current fair market value of the property if you give it to a 501(c)(3) public charity.  You will have to obtain a current qualified fair market value appraisal from a qualified appraiser to claim a deduction of more than $5000 and will have to file a completed Form 8283 describing the property and stating its value with your tax return.  (See Ready Reference Page: “IRS Requires Substantiation of Deductions”).

If it is inventory, you can probably deduct only your tax basis in the property, but the deduction may be augmented if the property will be used “solely for the care of the ill, the needy or infants.”  You may want to discuss with your corporate lawyer or accountant whether the property would be considered inventory in your business, and, if so, how to calculate the eligible deduction.

Tuesday, December 20, 2022

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